“I think what’s wonderful about the segregation is it provides clarity, and it will dictate the questions that everybody should be asking, as well as the type of reporting that we’ll potentially begin to see over time,” Romanelli said.
With more concrete definitions in place, advisors and investors alike will be able to better navigate the landscape of ESG products. Most importantly, it will allow them to avoid risks associated with greenwashing, where a fund manager might exaggerate the positive environmental impact of a particular strategy to appeal to climate-focused investors. Social washing and impact washing have also become a concern over the past few years, as more investors focus on issues aside from climate change and the environment.
According to Labelle, greenwashing has become a more talked-about risk among asset managers. Headlines around the topic gravitate toward deceptive marketing to investors, but she stressed that even well-intended managers may fall into the greenwashing trap if they’re not careful.
“Our retail audience might not be responsible investment specialists, so we have to be careful about how we talk about it and how it will come across,” Labelle said. “We’ve been working on a guide on common pitfalls to avoid greenwashing, which are mostly around the impact and outcomes of our products. … We’re really that doing that work to be proactive in the way that we talk about it.”
While there are no strict requirements associated with ESG fund marketing at the moment, many serious asset managers see honesty is the best policy against greenwashing. That means giving investors and advisors visibility “under the hood” by giving information about a fund’s holdings, as well as other metrics that indicate where it lies on the ESG spectrum.
